The new VAT (Value-Added Tax) rules for e-commerce will come into force on January 2021, which were adopted by the Council on 21 November 2019.
The European Commission aims to simplify VAT obligations for companies carrying out cross-border sales of goods or services (mainly online) to final consumers. The European Commission seeks that VAT on such supplies is paid correctly to the Member State of the customer, in line with the principle of taxation in the Member State of destination.
Let’s take a look at 2019 when the following changes were implemented in the VAT e-commerce area:
Introduction of two thresholds to simplify VAT obligations for microbusinesses and SMEs:
1. An annual turnover threshold of EUR 10 000 was set for intra-EU cross-border supplies of telecommunications, broadcasting and electronic (TBE) services. Up to EUR 10 000 TBE supplies remain subject to the VAT rules of the Member State of the supplier.
2. An annual turnover threshold of EUR 100 000 up to which the vendor must only keep one piece of evidence (instead of two) to identify the Member State of the customer.
For invoicing, the rules of the EU country of identification of the supplier were set instead of the rules of the Member States of consumption (i.e. of the customer).
A gap in the current Mini One Stop Shop (MOSS) was closed: a business not established in the EU but having a VAT registration in the EU (e.g. for occasional transactions) can make use of the non-Union scheme (i.e. the scheme for taxable persons not established in the EU).
Whereas from 1 January 2021 the extension of the MOSS and the special provisions concerning the obligations of electronic interfaces will enter into force as IT systems need to be adapted or developed.
I. VAT on Digital Platforms
Businesses operating electronic interfaces such as Amazon or eBay marketplaces or platforms will, in certain situations, be deemed for VAT purposes to be the supplier of goods sold to customers in the EU by companies using the marketplace or platform. Consequently, they will have to collect and pay the VAT on these sales.
For imports below €150, instead of import VAT, the marketplace will charge the customer VAT at the point of sale and declare it instead of the seller.
Building on the success of the MOSS for TBE services, this concept will be extended and turned into a One Stop Shop (OSS).
| Summary: |
– After changes, marketplaces will become responsible for charging and collecting VAT on affected transactions.
– The new deemed supplier regime will apply in two use cases when the marketplace is facilitating a B2C sale:
a) imports with a crossborder transaction not exceeding €150; and
b) distance selling cross-border transactions of any value for non-EU sellers.
II. MOSS Extension
a) The non-Union scheme for supplies of TBE services by taxable persons not established in the EU will be extended to all types of cross-border services to final consumers in the EU;
b) The Union scheme for intra-EU supplies of TBE services will be extended to all types of B2C services as well as to intra-EU distance sales of goods and certain domestic supplies facilitated by electronic interfaces. The extension to intra-EU distance sales of goods goes hand in hand with the abolition of the current distance sales threshold, in line with the commitment to apply the destination principle for VAT.
Important! When the reforms come into effect, the existing ‘Distance Selling Thresholds’ rules will be withdrawn.
– After changes, the eCommerce sellers will be able to close their foreign VAT registrations. They can instead complete a quarterly OSS return for their home country’s tax authority.
– After changes, a current registration threshold simplification will be withdrawn. Cross-border sellers will have to charge the VAT rate of the customer’s country of residence from their first sale and remit it to the foreign tax authorities.
III. VAT Import Scheme
An import scheme will be created covering distance sales of goods imported from third countries or territories to customers in the EU up to a value of EUR 150.
Different than today used import scheme, after the changes the seller will charge and collect the VAT at the point of sale to EU customers and declare and pay that VAT globally to the Member State of identification in the ‘Import One Stop Shop’ (IOSS).
Non-EU sellers will have to register for IOSS in one of EU state, to declare the VAT on any affected imports on shipments below €150.
The introduction of the import scheme goes hand in hand with the abolition of the current VAT exemption for goods in a small consignment of a value of up to EUR 22. This exemption will disappear with effect from January 1, 2021. This means that, in principle, VAT is due on every “delivery” that is imported into the EU.
Where the import OSS is not used, a second simplification mechanism will be available for imports. Import VAT will be collected from customers by the customs declarant (e.g. postal operator, courier firm, customs agents) which will pay it to the customs authorities via a monthly payment.
| Summary: |
– After changes, the VAT will be charged at the point-of-sale for transactions up to the value €150.
– After changes, a non-EU sellers will have to register for IOSS in just one EU state, to declare the VAT on any affected imports on shipments below €150.
If you have any additional enquires or worries how above-mentioned changes can impact your business, do not hesitate to contact us.